A Greek Revival of Anxiety, Some Say Without Foundation

Many investors fear that Alexis Tsipras may take a hard line in terms of repaying Greek debt.Credit Alkis Konstantinidis/Reuters

Greek agita is back. Or is it?

After a two-year spell during which investors eagerly snapped up Greek assets, the prospect of new elections and the arrival of a tough-talking new prime minister are once again roiling European markets.

But as the yields on benchmark Greek bonds soared and the Athens stock exchange plunged 4 percent, analysts remained divided as to whether the election of a new government with a mandate to reject years of forced austerity will signal a return to the dark days of the European debt crisis.

In a note published on Monday, Mujtaba Rahman, an analyst at the Eurasia Group in London, raised the prospect of contagion spreading from Greece to other reform-challenged economies in the eurozone like France and Italy.

After Greece, Italy had the worst-performing debt securities in the eurozone bond market on Monday.

Many investors fear that the head of the left-leaning Syriza party, Alexis Tsipras, may even take a hard line in terms of repaying Greek debt, raising the specter of another Greek debt default. The arrival of Mr. Tsipras on the scene will probably delay any move by the European Central Bank to step into the market and buy in bulk eurozone government bonds.

Still, Mr. Tsipras may carry with him the reputation of a firebrand, but those who have spent time with him say that he is less the reckless populist than a measured pragmatist eager to strike a deal with Greece’s creditors.

Analysts point out that the maturities on Greece’s debt — the majority of which is owned by European governments — have been extended and its interest rate has been sharply reduced over the last few years.

“There is zero possibility that Tsipras will do something unilateral,” said Dimitris Drakopoulos, an economist at Nomura in London.

Mr. Drakopoulos expects an agreement to be reached between a new Greek government and its creditors in time for the country to make payments on maturing bonds.

That may well happen. But even after a significant debt restructuring and a five-year economic depression, Greece’s debt for next year is estimated to be close to 180 percent of gross domestic product — a record high.

So no matter how long Europe stretches out those terms, that headline figure will remain more or less constant, leading economists, including the International Monetary Fund, to argue that Europe should bite the bullet and accept a loss on these bonds.

“A haircut would really help in terms of putting a dent in that number,” said Hans Humes of Greylock Capital, a hedge fund that specializes in distressed debt.

Although the cost of reducing Greek debt to a more manageable level would be minimal to European taxpayers, Mr. Humes says that for the moment, the politics of such a step remain formidable.

For countries like Italy, which relies on global bond investors to finance its ever increasing debt obligations, the arrival of Mr. Tsipras at center stage — brief as it may be — is worrisome indeed.

Unlike bailed-out countries like Spain and Ireland, France and in particular Italy remain plagued by a toxic mix of low growth, high unemployment and restless electorates, making it difficult for governments to pass austerity measures.

Italy’s debt stands at 133 percent of G.D.P., higher than Greece’s was in 2010 when it was forced into a bailout.

Next year, according to Barclays, Italy will need to sell 308 billion euros in bonds, the third highest in the world after the the United States and Japan.

So far, large hedge funds, mutual funds and European banks have been ready buyers of these bonds in the belief that the E.C.B. will eventually start buying them as well.

But if the E.C.B. gets cold feet in this regard — perhaps prompted by political problems in Greece — then a stampede out of these and other risky European bonds cannot be discounted.